Interest rates, recession concerns and new guidelines for mergers and acquisitions (M&As) are impacting activity in the market.

Given the current state of the economy, now might be an ideal time to pick up or divest a distressed convenience store business.

After all, handled properly, mergers and acquisitions (M&As) allow the acquiring business to gain another operation that is a good fit under favorable terms and that might not otherwise survive.

An M&A transaction can mean helping a troubled business survive without the owners or shareholders completely losing what they’ve built up over the years. Equally important, an M&A can save the jobs of workers.

M&As refer to the consolidation of businesses through various transactions labeled as mergers, acquisitions and takeovers. In a merger, two or more convenience store businesses combine their assets and operations to form a new entity.

An acquisition occurs when one business purchases another, gaining control over its assets, operations and often its brand. Takeovers, much like acquisitions, occur when a business takes control of something, such as the buying out of one convenience store business by another.

Despite the many benefits of M&As, unfortunately, M&A activity has dried up recently as a result of rising interest rates, fear of recession and President Joe Biden’s sweeping new merger guidelines.

New Merger Guidelines

In response to Biden’s executive order outlining 72 actions by 12 federal agencies aimed at promoting competition, the executive order directed the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to rewrite their guidelines on antitrust enforcement.

Although the guidelines change how large companies’ acquisitions are reviewed, they also reflect a concern with repeated small acquisitions, such as those by private equity firms that are part of an effort to “roll up” a fragmented industry.

Traditionally, M&As have generally been viewed for their tendency to create a monopoly. The new guidelines take this a step further by targeting acquisitions that do not appear to impact competition but are part of what can best be described as a conscious attempt to consolidate an industry.

The new guidelines followed the agencies’ proposed new merger qualification rules under the Hart-Scott-Rodino (HSR) Act that increased the information required in reportable mergers as well as the time and expense involved. The HSR rules also focus on private equity transactions, both in terms of identifying so-called “interlocking directorates” and prior acquisitions that could be a part of a roll-up.

The guidelines the FTC and DOJ will follow when reviewing deals focus on three core goals. The first goal is, of course, that the courts will accept them. The second is that the guidelines should be accessible, which the FTC and DOJ hope will increase transparency and awareness. And, lastly, that the guidelines reflect modern economic realities.

Specifically, the 13 guidelines the FTC and DOJ will follow when reviewing M&A deals are:

  • Mergers should not significantly increase competition in highly concentrated markets.
  • Mergers should not eliminate substantial competition between firms.
  • Mergers should not increase the risk of coordination.
  • Mergers should not eliminate a potential entrant in a concentrated market.
  • Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete.
  • Vertical mergers, those mergers of two or more businesses that provide different supply chain functions, should not create market structures that foreclose competition.
  • Mergers should not extend a dominant position.
  • Mergers should not further a trend toward concentration.
  • When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
  • When a merger involves a digital platform that acts as an intermediary connecting two or more mutually dependent groups of users such as buyers and sellers (in other words, a multisided platform), the agencies examine competition between platforms, on a platform or to displace a platform.
  • When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.
  • When an acquisition involves partial ownership or minority interests, the agencies examine the impact on competition.
  • Mergers should not otherwise substantially lessen competition or tend to create a monopoly.

M&As undeniably create vast opportunities for convenience store businesses, large and small. However, while M&As can be quite rewarding for all parties involved, they demand planning and effective execution.

An awareness of the potential pitfalls, from integration hiccups, cultural clashes, financial pressures, talent attrition and now the new guidelines for M&As issued by the FTC and DOJ, make planning essential. Thorough assessments, analysis and professional advice is more important today than ever.

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